A survey of the causes of non-performing loans of commercial Banks in Kenya

The purpose of this research was to investigate the causes of non-performing loans in \nKenyan banks. The research questions used to guide the research included: \n1. What are the causes of non- performing loans in Kenyan banks? \n2. What specific steps have bank managers taken to deal with the problem of non-performing loans? \n3. What is the level of success of the actions taken? \nThis is an explanatory research that adopted the survey research design. Data was \ncollected with the help of a questionnaire sent to 30 bank officers. The officials were \npurposively sampled from the ten leading banks ranked according to the value of their net assets as available from the Central Bank of Kenya listing. \nRecommendations of this study are that loan officials must grant loans basing their \nappraisal on loan analysis principles, using their discernment as well as experience to \nverify debtor credibility i.e., debt repayment ability, capital management and collateral \nsuitability. More importantly, loan officials should strictly monitor and control how the \nloan is used in order to be able to promptly handle arising problems. The study found that the actions had proved useful in minimizing bad loans in the banks surveyed as reported by the credit managers. In addition, banks should continue to invest in the training of loans officials since most of the respondents confirmed that it was a new trend. \nThe findings of this study will help the management in Kenyan banks to improve their \nmanagement of non-performing loans. These study findings will encourage bank \nmanagers to participate more in policy formulation at the micro and macro levels as far as bad debt management is concerned and also to diversify banks investment portfolios. \nOther stakeholders such as researchers can use the findings as a basis for further research.